Hi
Can someone explain to me how to use moving averages to plot trends?
Much appreciated
No ,thank you ,will read it now. I think I rather hastily posted ,forgetting to check out previous forum posts etc
I recommend the 20 EMA as a baseline for determining trend direction.
Do you recommend using more than one EMA? Or just the 20 EMA.
The ‘baseline’ is that no moving average, whether simple, exponential, weighted, etc. will predict
trend future! I could not emphasise this enough… We had traders on here sharing their systems
based on tweaking moving average range (e.g. 20 days, fifty days, etc.) and type, but in the end
here is the problem for any moving average indicator: it is just that, an average!
If you consider the simple fact also, that if you chose a twenty-day moving average, for example,
it would move much faster up and down, reacting more sharply to previous changes in price;
conversely, a one-hundred-day moving average would do exactly the opposite. How would you
determine which signal to follow? Would you use a combination system (e.g. crossover)? A ribbon?
Would you wait for price to cross a moving average as a cue, or would you use crossing moving
averages only? Moving averages work well in trending markets, but do very little in choppy, ranging
scenarios… All moving average packaged demonstrations will show you examples of them performing
beautifully in trending markets, but for situations like what we have now in EUR/USD, that is, of
great uncertainty and lack of fundamental direction, no matter which type of moving average you
will apply to the charts, it will likely give you false signals…
That is my ‘two cents’… 
One very simple way is just to draw 15-period and 50-period simple moving averages for whatever time-frame you’re looking at.
If the SMA-15 is above the SMA-50 and the SMA-50 is rising, then there’s an upward trend within that timeframe. If the SMA-15 is below the SMA-50 and the SMA-50 is falling, then there’s a downward trend within that timeframe.
But don’t try to use “moving average crossovers” as trading entry/exit signals - that’s [U]not[/U] going to work, in the long run: it can [I]appear[/I] to work [I]temporarily[/I] in exactly the right sort of market which is at that time behaving in exactly the right sort of way, but that’s a small minority of the time, and it isn’t really helpful as a “method”.
As one or two of the experts interviewed by Jack Schwager in his books [I]Market Wizards[/I] and [I]The New Market Wizards[/I] explain so clearly, all you need to do to tell whether or not a market is trending is pin up its chart on a wall and look at it from the other side of the room: if you can’t see a clear trend from that distance [U]without using any indicators[/U], then there isn’t one.
I use two moving averages, the 200 EMA and the 55 EMA. I use the 200 EMA as support or resistance level and the 55 EMA to determine the trend and strength of the trend.
Hello Chip
MA’s can be used as an additional/confirmation tool to trend line or in some cases can replace trend lines when the angle of the trend is too steep. MA’s (price filters) are best used for trending markets as pipmehappy explained. However, there are some facts to consider when you use MA’s:
1-There is no magic numbers, MA parameters work for one stock but not for another. Therefore you can can either
(A) Use standardized parameters to know the overall price level of each chart vs a fixed MA (or more than one) compared to other charts (advisable for sectorial analysis) OR
(B) Use adjusted parameters for each chart in line with their price behavior.
2- Since you need trending charts not ranging, you can find it either by horizontal selection among the markets,stocks, pairs or my vertical selection for one chart by changing the time frame (zoom in/out).
3-MA efficiency changes in time, as everything else does, so you need periodic parameter adjustment.
As for numbers, 10, 20, 50, 200, these are just numbers. It is not recommended to get married to them. But if you are using standardized parameters for all charts, why not use fibo numbers, 8,13,21,34,55…
Happy Trading!
Thanks very much guys ,always appreciate the advice.
@PMH ,appreciate the “two cents”
@Lexys I like it as I do kinda use the more stand back a way and see what is happening theory ,also like the two SMA usage for confirmation etc
@fxstrategist nice ,will try that one on my current trends etc
@oceanmen ,yeah thanks deffo not married to the numbers ,really exploring ideas and more wanted confirmation of trends etc
Chip, take a look at the moving averages section of the school section. It’s really accelerated my learning and there’s a lot of really good stuff there.
I think you should read online materials about MACD, I believe I have read an article here on forums.babypips on MACD indicator. I have also seen a video on this sometime ago and it helped me, here it is: MACD - Profiforex Forex Broker
Most of all…
do not listen too much to advice, or to too much advice, which could have the
undesired effect of confusing you into following the latest ‘flash’ trick in the house…
You know, like us, that there is no easy fix when it comes to trading… any strategy,
regardless of the indicator used, can lose you money…
Good luck, Chip.
A moving average basically shows the average where price has been at a given number of periods versus current price. Best use is having 2 moving averages in unison. One will be over another until price changes and then the lines cross in the other direction. I personally use the 8 and 21 simple moving average on my charts. This way you have a better idea of what is going on.
"MA is representative of something. There is a numeric behind MA “5”. To open a stock chart time frame day means representative 5 days or one week of the stock. You need to define trend and identify yourself that you’re short /middle/long term investment.
There are 2 most popular MA are SMA and EMA."
the problem is how can you determine if you are in a ranging or a trending period?
answer: you cant.
a moving average can fool you into thinking that you are in a trend, but then later you find out that the trend turned back into a ranging chart, etc.
all basic indicators are based on moving averages,=they do not indicate anything.